Employee entitled to 6 months wages after only 6 months of employment!
Wages in lieu of notice continues to be one of the most misunderstood areas of business law. Just last week, a business sale failed because of this issue. I wrote an article on the importance of signing contracts with employees before. In essence, unless otherwise agreed upon in a written contract, courts will conclude that employers must provide sufficient notice when terminating an employee. You can read the article cited above to understand the factors courts consider when establishing the notice period, but for the purposes of this article it can range from 2 to 4 weeks for every year of service.
However, in the case of short-term employees, the notice period can be much longer. In 2018, a court in Vancouver awarded a former employee 6 months of wages in lieu of notice after only 6 months of employment. While this award may come as surprise to many, awards of this size for short term employees are not uncommon. In 2002, a court in Manitoba awarded 6 months of wages in lieu of notice for a terminated employee after only 10 months of employment.
Before diving into the specifics of these cases and the short-term employee issue, let’s review the legal principles behind severance. Unless you terminate an employee for cause (which is a tricky problem as well), you must provide them notice of termination. Under the Employment Standards Code in Manitoba, section 61(2) establishes that employers must provide notice of termination as follows:
- Less than one year (of employment) – 1 week
- One year to less than three years – 2 weeks
- Three years to less than five years- 4 weeks
- Five years to less than ten years – 6 weeks
- At least 10 years – 8 weeks
The Code sets out the minimum. Employers and employees cannot agree to anything less. So if an employee signs an employment contract stating that the employer may terminate the employee without notice, the Code still applies. The employer must either give the employee notice or pay wages in lieu of notice in accordance with s. 61(2).
Common Law notice
While the Code applies regardless of any agreements, employers and employees can agree that an employer’s obligation to provide notice is limited to s. 61(2) of the Code. If they do so in writing, then the employer’s obligations remain clear. However, if employers and employees do not specifically address the notice issue in the employment contracts, the Common Law applies. Absent specific provisions in a contract, courts infer longer notice periods. (read the article cited in the introduction for a more comprehensive review of the common law)
Wages in lieu of notice
When employers terminate an employee they must provide notice in accordance with the Code and, unless otherwise agreed upon in an employment contract, with the Common Law. Rather than giving actual notice, employers may choose to pay wages in lieu of notice. If an employer terminates an employee and fails to provide appropriate notice, the employee can take the employer to court. When judges are in favour of employees, they award damages. The damages are calculated in wages owed.
Short-term employee problem
Why do short-term employees benefit from longer notice periods at common-law? Under the Code, employer must only provide one week’s notice of termination to employees with less than a year of service. Compare that to the 6 month awards in the two cases cited above. How can these two periods be so drastically different?
Then answer lies in difficulties faced by short employment terms. Employees who work for short periods of time may find it more difficult to find comparable employment after a short stint. Prospective employers may be wary of an applicant who worked less than a year with one employer. A quick internet search shows that short employment engagements are problematic for prospective employees. In both the Vancouver and Manitoba cases, courts found that a long job search following termination justified longer notice periods.
In the more recent B.C. case, a windows manufacturing business hired a salesman who had been working in the construction industry. In this industry he earned approximately $100,000 a year in salary and commission. While he did not have any experience selling windows, the new company hired him on the basis of his sales experience in the industry. The new company spent some time making promises to induce the salesman to leave his previous employment. At trial, the judge found that the salesman relied to a certain degree on those promises. This is important because, in the judge’s view, it amounted to inducement (more on this below).
Shortly after the salesman started with the new company, the company gave him a less lucrative market segment to service. Shortly after that, the company terminated the sales manager who hired him. Six months after starting, the new sales manager terminated him and provided one week of wages in lieu of notice.
By the time the court case started, the employer argued that they only had to pay 2 to 3 months of wages. The employee on the other hand argued for six months. As discussed above, the judge concluded that the new employer induced the employee to leave his previous secure employment. Courts established in Common Law, the legal principle that employers who induce employees with promises of job security owe those employees a higher duty.
While the judge did rely on the factor of inducement, he did not place significant weight on that factor. Rather, the judge concluded that the difficulties experienced in finding work justified a longer notice period. According to his lawyer:
“Over seven months, Greenlees applied to at least 42 companies and was invited for interviews at eight companies. He had two offers of employment but at a salary lower than his previous job. He eventually found a job making $70,000 a year plus commission.”
The judge concluded:
“Mr. Greenlees’ job search was diligent and I am not persuaded that he was overly picky. He may have been hampered by the hole in his resume represented by his employment with Starline and it’s refusal to provide a letter of reference.”
In the Manitoba case, a marketing consultant accepted a position as sales and marketing manager for a printing company. Within a few months, the relationship between the new employee and her supervisor deteriorated. 10 months after starting, the employer terminated her employment.
At trial she argued inducement. However, the judge concluded that the principle of inducement did not apply. He stated:
“No doubt the defendant actively recruited the plaintiff because they believed she would be an ideal candidate, having written the marketing report. But the plaintiff accepted the job with her eyes wide open as it were because she viewed it as a challenge and was absolutely confident that all would turn out well and it would be a success…This was not a case where she had sought or was given assurances that if she left her previous employment, she would find security with the defendant.”
While the judge relied on several factors, he recognized that the employee in this case ended up in a worse position than she had started her new position.
The purpose of the notice period is to tide the employee over until she can secure comparable employment. The notice period should be of a sufficient length to enable that to happen. She made a diligent and concerted effort to find employment but without success. The best she has been able to come up with is temporary clerical work. Because of her personal situation as a single parent (which was not the case when she had her consulting practice), she has opted not to try to re-develop her consulting business, but to seek more regular and secure employment.
It’s impossible to know whether her changed personal situation as a single parent would have affected her consulting business had she not accepted the new position. However, rightly or wrongly, it appears the court was willing to attribute some responsibility for that to the new employer.
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Philippe Richer is President of TLR Law Group. TLR has been located in the St. Boniface neighbourhood, in Winnipeg, since 1996. The office serves the middle class and small business within the province. With a focus on estates, wills, real estate, and corporate law, he leads his team in providing accessible legal services. Philippe also authored the business law course for the Knowledge Bureau and instructed the français juridique class at the faculty of Law at the University of Manitoba.